THE COMMISSIONER OF INCOME TAX V. M/S.MOTOR INDUSTRIES CO. LTD.

ITA/856/2008

AI Insights

The case involves an appeal by the Commissioner of Income-Tax and the Assistant Commissioner of Income-Tax against M/s. Motor Industries Co. Ltd. (Bosch Ltd.) concerning the inclusion of certain amounts in the total turnover for the purpose of tax assessment for the year 2000-2001. The primary issues revolved around the treatment of excise duty, sales tax, and certain receipts in the computation of total turnover and deductions under Section 80HHC of the Income Tax Act. The Tribunal had previously ruled in favor of the assessee, which the Revenue challenged in this appeal. The High Court's decision focused on the interpretation of specific provisions of the Income Tax Act regarding the timing of tax remittance and its impact on allowable deductions.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 701348 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 25-08-2014
• Assessment Year: misc
• Other Referred Cases: ITA.No.81/2003, ITA.Nos.776/2007
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: K P KUMAR
• Assessee Lawyers: K V ARAVIND
• Keywords: Contingent Liability; Deduction; Excise Duty; Income Tax; Sales Tax; Technical Services; Total Turnover
• Section: 80HHC; 40(a)(i); 200(1); 260-A; 145-A; 30(1)(b)(i)(1)

Judgement Text

" - 1 - IN THE HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THE 25TH DAY OF AUGUST, 2014 PRESENT THE HON’BLE MR.JUSTICE N.KUMAR AND THE HON’BLE MRS.JUSTICE RATHNAKALA INCOME TAX APPEAL NO.856 OF 2008 BETWEEN: 1. THE COMMISSIONER OF INCOME-TAX, C R BUILDING, QUEENS ROAD, BANGALORE. 2. THE ASST. COMMISSIONER OF INCOME-TAX, CIRCLE-12(1). C.R. BUILDING, QUEENS ROAD, BANGALORE. …APPELLANTS (BY SRI K.V.ARAVIND, ADV.) AND: M/S. MOTOR INDUSTRIES CO. LTD., (BOSCH LTD.,) HOSUR ROAD, ADUGODI, BANGALORE-560 030. ...RESPONDENT (BY SRI. K P KUMAR, SR.COUNSEL FOR M/S.KING & PARTRIDGE, ADVS.) - 2 - THIS INCOME TAX APPEAL IS FILED UNDER SECTION 260-A OF I.T. ACT, 1961 ARISING OUT OF ORDER DATED 14-03-2008 PASSED IN ITA NO.277/BNG/2005, FOR THE ASSESSMENT YEAR 2000-2001, PRAYING THAT THIS HON'BLE COURT MAY BE PLEASED TO: I. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN, II. ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE INCOME-TAX APPELLATE TRIBUNAL, BANGALORE IN ITA NO.277/BNG/2005, DATED 14-03-2008 CONFIRM THE ORDERS OF THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-12(1), BANGALORE IN THE INTEREST OF JUSTICE AND EQUITY. THIS APPEAL COMING ON FOR FINAL HEARING THIS DAY, N.KUMAR J., DELIVERED THE FOLLOWING: J U D G M E N T This appeal is preferred by the Revenue challenging the order passed by the Tribunal. 2. The appeal was admitted on 23.06.2009, to consider the following substantial questions of law: “1) Whether the Appellate Authorities were in holding that excise duty and sales tax amounting to Rs.2,45,85,33,998/- cannot be included in the total turnover in the light of the judgment of this Hon’ble Court in ITA.No.81/2003 applicable to assessment year 1994 - 95 without taking into consideration the amended Section 145 A of the Act introduced w.e.f. 01.04.1999 and applicable to the current assessment year? - 3 - 2) Whether the Appellate Authorities were correct in holding that receipts of Rs.5,12,54,198/- from sale of scrap cannot be included in the total turnover for the purpose of computation of deduction u/s.80HHC of the Act? 3) Whether the Appellate Authorities were correct in holding that 90% of the fees received from Robert Bosch of Rs.4,77,65,406/- cannot be excluded in accordance with Explanation to Section 80HHC of the Act? 4) Whether the Appellate Authorities were correct in holding that the provision for warranty is an allowable deduction despite the assessee having not expended the same which is a contingent liability? 5) Whether the Appellate Authorities were correct in holding that TDS made towards royalty and fees for technical services remitted on 07.06.2000 is allowable despite the same being beyond the period of two months stipulated u/w.200(1) r/w. Rule 30(1)(b)(i)(1) and the same is not allowable as a deduction u/s.40(a)(i) of the Act? The substantial questions of law No.1 to 4 are already answered in favour of the same assessee and against the Revenue in ITA.Nos.776/2007 and connected matters for the assessment years 1993 – 94 to 1997 - 98 on 13.06.2014. - 4 - Hence, substantial questions of law No.1 to 4 need not be considered again. 3. Insofar as the substantial question of law No.5 is concerned, it revolves around interpretation of Section 200(1) r/w. Rule 30(1)(b)(i)(1) and 40(a)(i) of the Act. The point of controversy is in respect of royalty, where tax was deducted at source before 31.03.2000. However, it was remitted on 07.06.2001, beyond two months period prescribed under Section 30(1)(b)(i)(1) of the Act. Therefore, the question for consideration is, in which financial year the payment of deduction is to be taken into account? 4. Learned Counsel for the Revenue relied on Section 40(a)(i) of the Act which reads as under: 40. Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head “Profits and gains of business or profession”,— (a) in the case of any assessee— [(i) any interest (not being interest on a loan issued for public subscription before the 1st day of April, 1938), royalty, fees for technical services or other sum chargeable under this Act, which is payable,— - 5 - (A) outside India; or (B) in India to a non-resident, not being a company or to a foreign company, on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid during the previous year, or in the subsequent year before the expiry of the time prescribed under sub-section (1) of section 200 : Provided that where in respect of any such sum, tax has been deducted in any subsequent year or, has been deducted in the previous year but paid in any subsequent year after the expiry of the time prescribed under sub-section (1) of section 200, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid. Explanation.—For the purposes of this sub- clause,— (A) “royalty” shall have the same meaning as in Explanation 2 to clause (vi) of sub- section (1) of section 9; (B) “fees for technical services” shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9; 5. He submits that the proviso makes it very clear that in respect of any such sum, if the tax has been deducted in subsequent year or has been deducted in the previous year - 6 - and paid in the subsequent year after the expiry of the time prescribed under Section 200(1) of the Act, such sum shall be allowed as deduction in computing the income of the previous year in which such tax has been paid. The said proviso was inserted by Finance (No.2) Act of 2004 with effect from 01.04.2005. 6. However, we are concerned with the assessment year 2000 – 01. During that period the proviso to Section 40 of the Act read as under:- “Provided that where in respect of any such sum, tax has been paid or deducted under Chapter XVII-B in any subsequent year, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid or deducted”. 7. Therefore, it is clear that prior to 2004, even if the amount is deducted and not paid during the relevant year and when it is paid subsequently, the benefit of the deduction is given to the previous year prior to the date of deduction. That is precisely what the tribunal has held. Therefore, we answer the substantial question of law in favour of the assessee and against the Revenue. We do not - 7 - see any merit in this appeal. Accordingly, the appeal is dismissed. Sd/- JUDGE Sd/- JUDGE nvj "